UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.............to...............
Commission file number 0-8408
WOODWARD GOVERNOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-1984010
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5001 North Second Street, Rockford, Illinois 61125-7001
(Address of principal executive offices)
(815) 877-7441
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No...
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes... No...
As of April 30, 2000, 11,245,797 shares of common stock with a par value of
$.00875 cents per share were outstanding.
WOODWARD GOVERNOR COMPANY
FORM 10-Q
For the Quarter Ended March 31, 2000
INDEX
Description
Part I. Financial Information
Item 1. Financial Statements
Statements of Consolidated Earnings for the
Three Months ended March 31, 2000 and 1999
Statements of Consolidated Earnings for the Six
Months ended March 31, 2000 and 1999
Consolidated Balance Sheets as of
March 31, 2000 and September 30, 1999
Statements of Consolidated Cash Flows for the Six
Months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
for the three months ended March 31, 2000 and 1999
(in thousands except per share amounts)
(Unaudited)
2000 1999
Net billings for products and services $149,085 $144,408
Costs and expenses:
Cost of goods sold 116,340 107,564
Sales, general, and administrative expenses 20,148 19,847
Amortization of intangible assets 1,508 1,701
Restructuring expense - 8,174
Interest expense 3,076 3,282
Interest income (165) (307)
Other expense--net (649) 242
Total costs and expenses 140,258 140,503
Earnings before income taxes and
equity in loss of unconsolidated affiliate 8,827 3,905
Income taxes 3,440 1,562
Earnings before equity in loss of
unconsolidated affiliate 5,387 2,343
Equity in loss of unconsolidated affiliate,
net of tax 15 279
Net earnings $5,372 $2,064
Basic earnings per share $0.48 $0.18
Diluted earnings per share $0.48 $0.18
Weighted-average number of basic shares outstanding 11,241 11,267
Weighted-average number of diluted shares
outstanding 11,260 11,280
Cash dividends per share $0.2325 $0.2325
See accompanying Notes to Consolidated Financial Statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
for the six months ended March 31, 2000 and 1999
(in thousands except per share amounts)
(Unaudited)
2000 1999
Net billings for products and services $282,677 $289,316
Costs and expenses:
Cost of goods sold 215,993 217,579
Sales, general, and administrative expenses 38,669 39,697
Amortization of intangible assets 3,175 3,406
Restructuring expense - 8,174
Interest expense 5,885 6,523
Interest income (339) (475)
Other expense--net 353 1,181
Total costs and expenses 263,736 276,085
Earnings before income taxes and
equity in loss of unconsolidated affiliate 18,941 13,231
Income taxes 7,485 5,292
Earnings before equity in loss of
unconsolidated affiliate 11,456 7,939
Equity in loss of unconsolidated affiliate,
net of tax 77 671
Net earnings $11,379 $7,268
Basic earnings per share $1.01 $0.64
Diluted earnings per share $1.01 $0.64
Weighted-average number of basic shares
outstanding 11,258 11,283
Weighted-average number of diluted shares
outstanding 11,285 11,295
Cash dividends per share $0.4650 $0.4650
See accompanying Notes to Consolidated Financial Statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
MARCH SEPTEMBER
31, 2000 30, 1999
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $13,544 $10,449
Accounts receivable, less allowance
for losses of $4,517 for March
and $4,417 for September 92,636 115,517
Inventories 108,455 104,257
Deferred income taxes 16,958 17,221
Total current assets 231,593 247,444
Property, plant, and equipment, at cost:
Land 5,980 6,100
Buildings and improvements 128,679 128,668
Machinery and equipment 230,961 227,611
Construction in progress 4,653 3,534
370,273 365,913
Less allowance for depreciation 245,478 241,791
Property, plant, and equipment - net 124,795 124,122
Intangibles - net 153,473 156,802
Other assets 5,833 4,287
Deferred income taxes 16,735 18,009
Total assets $532,429 $550,664
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $12,590 $7,303
Current portion of long-term debt 34,150 34,650
Accounts payable and accrued expenses 64,377 76,772
Taxes on income - 4,327
Total current liabilities 111,117 123,052
Long-term debt, less current portion 130,000 139,000
Other liabilities 47,538 46,620
Commitments and contingencies - -
Shareholders' equity represented by:
Preferred stock, par value $.003 per share,
authorized 10,000 shares, no shares, issued - -
Common stock, par value $.00875 per share
authorized 50,000 shares, issued
12,160 shares 106 106
Additional paid-in capital 13,249 13,300
Unearned ESOP compensation (7,629) (7,450)
Accumulated other comprehensive earnings 5,857 9,351
Retained earnings 253,772 247,420
265,355 262,727
Less treasury stock, at cost 21,581 20,735
Total shareholders' equity 243,774 241,992
Total liabilities and shareholders' equity $532,429 $550,664
See accompanying Notes to Consolidated Financial Statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
for the six months ended March 31, 2000 and 1999
(in thousands of dollars)
(Unaudited)
2000 1999
Cash flows from operating activities:
Net earnings $11,379 $7,268
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 14,899 16,997
Net gain on sale of property, plant, and equipment (183) (1,015)
Deferred income taxes 1,537 (97)
ESOP compensation expense (179) -
Equity in loss of unconsolidated affiliate 122 1,100
Changes in operating assets and liabilities:
Accounts receivable 21,256 9,302
Inventories (5,361) (236)
Current liabilities, other than short-term
borrowings and current portion of long-term debt (16,048) (11,852)
Other--net (710) 334
Total adjustments 15,333 14,533
Net cash provided by operating activities 26,712 21,801
Cash flows from investing activities:
Payments for purchase of property, plant,
and equipment (14,270) (12,832)
Proceeds from sale of property, plant, and equipment 1,048 4,119
Investment in unconsolidated affiliate - (725)
Net cash used in investing activities (13,222) (9,438)
Cash flows from financing activities:
Cash dividends paid (5,233) (5,254)
Proceeds from sales of treasury stock 803 -
Purchases of treasury stock (1,762) (1,029)
Net proceeds from (payments on) borrowings
under revolving lines 5,786 (79)
Payments of long-term debt (9,500) (118)
Tax benefit applicable to ESOP dividend 206 190
Net cash used in financing activities (9,700) (6,290)
Effect of exchange rate changes on cash (695) 718
Net change in cash and cash equivalents 3,095 6,791
Cash and cash equivalents, beginning of year 10,449 12,426
Cash and cash equivalents, end of period $13,544 $19,217
Supplemental cash flow information:
Interest expense paid $6,510 $6,441
Income taxes paid $9,844 $8,460
See accompanying Notes to Consolidated Financial Statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The consolidated balance sheet as of March 31, 2000, the statements
of consolidated earnings for the three and six-month periods ended March
31, 2000 and 1999, and the statements of consolidated cash flows for the
six-month period ended March 31, 2000 and 1999 were prepared by the
company without audit. The September 30, 1999, consolidated balance
sheet was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
Information in this 10-Q report is based in part on estimates and is
subject to year-end adjustments and audit. In our opinion, the figures
reflect all adjustments necessary to present fairly the company's
financial position as of March 31, 2000, the results of its operations
for the three and six-month periods ended March 31, 2000 and 1999, and
its cash flows for the six-month period ended March 31, 2000 and 1999.
All such adjustments were of a normal and recurring nature. The
statements were prepared following the accounting policies described in
the company's 1999 annual report and Form 10-K and should be read with
the Notes to Consolidated Financial Statements on pages 26-33 of the 1999
annual report. The statements of consolidated earnings for the three and
six-month periods ended March 31, 2000 are not necessarily indicative of
the results to be expected for other interim periods or for the full
year.
(2) Earnings per share:
Three months Six months ended
ended March 31,
March 31,
(In thousands, except per share
amounts) 2000 1999 2000 1999
Net earnings (A) $ 5,372 $ 2,064 $11,379 $7,268
Determination of shares:
Weighted-average shares of common
stock outstanding (B) 11,241 11,267 11,258 11,283
Assumed exercise of stock options 19 13 27 12
Weighted-average shares of common
stock outstanding assuming dilution
(C) 11,260 11,280 11,285 11,295
Basic earnings per share (A/B) $ 0.48 $ 0.18 $ 1.01 $ .64
Diluted earnings per share (A/C) $ 0.48 $ 0.18 $ 1.01 $ .64
The following stock options were outstanding during the three and six
months ended March 31, 2000 and 1999, but were not included in the
computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares
during the quarters.
Three months ended Six months ended
March 31, March 31,
2000 1999 2000 1999
Options 509,498 383,041 362,898 383,041
Weighted-average exercise price $27.63 $28.76 $29.30 $26.15
(3) Inventories:
March September
(In thousands) 31, 2000 30, 1999
Raw materials $3,783 $2,452
Component parts 49,124 64,059
Work in process 42,796 26,955
Finished goods 13,368 12,021
109,071 105,487
Less progress payments (616) (1,230)
$108,455 $104,257
(4) Included in accounts payable and accrued expenses are accounts
payable of $17,344,000 at March 31, 2000, and $20,923,000 at September
30, 1999. Also included in accounts payable and accrued expenses are
accrued restructuring expenses of $254,000 at March 31, 2000, and
$475,000 at September 30, 1999. Accrued restructuring expense and its
decrease are due to member termination benefits.
(5) Foreign currency translation adjustments are accumulated with other
comprehensive earnings (losses) as a separate component of shareholders'
equity. We have no other components of other comprehensive earnings.
The company's total comprehensive earnings were as follows:
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
Net earnings $5,372 $2,064 $11,379 $7,268
Other comprehensive losses (2,369) (1,373) (3,494) (373)
Total comprehensive earnings $3,003 $691 $7,885 $6,895
(6) Segment information:
At or for the
three months Six months
ended ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
Aircraft Engine Systems:
External net billings $77,713 $82,016 $142,444 $162,529
Intersegment billings 330 384 558 730
Segment earnings 4,558 15,806 9,014 29,121
Segment assets 321,381 320,490
Industrial Controls:
External net billings $45,124 $45,972 $91,497 $92,522
Intersegment billings 5,722 4,799 11,006 11,902
Segment earnings 9,126 5,748 19,941 10,863
Segment assets 110,584 130,856
Other Segments:
External net billings $26,248 16,420 $48,736 $34,265
Intersegment billings 1,368 1,169 2,103 1,502
Segment earnings (losses) 2,460 (3,126) 3,814 (4,872)
Segment assets 42,445 33,739
The difference between the total of segment earnings (losses) and the
statements of consolidated earnings follows:
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
Total earnings for reportable
segments $13,684 $21,554 $28,955 $39,984
Other segments' earnings (losses) 2,460 (3,126) 3,814 (4,872)
Restructuring expense, interest
expense and interest income (2,911) (11,149) (5,546) (14,222)
Unallocated corporate expenses (4,406) (3,374) (8,282) (7,659)
Consolidated earnings before income
taxes and equity in loss of
unconsolidated affiliate $8,827 $3,905 $18,941 $13,231
PART I - ITEM 2
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We have prepared the following discussion and analysis to help you better
understand our results of operations and financial condition. This
discussion should be read with the consolidated financial statements,
including the notes.
RESULTS OF OPERATIONS
Our results of operations are discussed and analyzed by reportable
segment. We have two reportable segments - Aircraft Engine Systems and
Industrial Controls. Aircraft Engine Systems provides fuel control
systems and components primarily to original equipment manufacturers of
aircraft engines. Industrial Controls provides fuel control systems and
components primarily to original equipment manufacturers of industrial
engines and turbines.
Our other operations include Global Services and Automotive Products.
Global Services focuses on providing control systems and related services
to industrial engine users in retrofit situations. Automotive Products
focuses on products for the non-automotive small engine markets that
require low-cost, high-volume, high-reliability manufacturing processes
characteristic of suppliers to the automotive industry.
The segment earnings reported for these segments in the discussion and
analysis that follows does not reflect restructuring expense, interest
expense, interest income and allocations of corporate expenses, and is
before income taxes and equity in loss of unconsolidated affiliate.
These other items are separately discussed and analyzed.
Aircraft Engine Systems
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
External net billings $77,713 $82,016 $142,444 $162,529
Segment earnings 4,558 15,806 9,014 29,121
External net billings of Aircraft Engine Systems decreased in both the
three months and six months ended March 31 in 2000 as compared to 1999.
In addition to normal period-to-period variability, we experienced
decreases related to aftermarket revenue which we believe may be caused
by broader industry trends, including the lengthening of time between our
customers' discretionary repair and overhaul activities, increasing
competition from original equipment manufacturers that have expanded
their own aftermarket service offerings, and increasing reliability of
our components. In addition, in fiscal year 1999 our first quarter
billings were relatively strong due in part to shipments that were
originally scheduled for delivery in the fourth quarter of fiscal year
1998. With improvements in delivery performance, we did not have similar
shipments this year, impacting our six-months comparison. Our second
quarter billings increased over our first quarter billings and we believe
they will continue to strengthen over our final two quarters of fiscal
year 2000.
Segment earnings of Aircraft Engine Systems decreased in both the three
months and six months ended March 31 in 2000 as compared to 1999. These
decreases can be attributed to the reduced billing levels this year as
compared to last year, especially related to aftermarket revenues, and
higher expenses in several areas. Billing levels impacted our profits
disproportionately because many of our costs are relatively fixed in
nature. Our expenses increased this year over last year primarily
because of costs associated with our second quarter early retirement
program (discussed below), ongoing product development activities,
specific warranty issues, and the rapid expansion of our industrial
nozzle business. Except for warranty, we believe these costs will
benefit future periods. Partially offsetting these increased expenses
was a reduction of certain accruals related to a prior business
acquisition of $0.9 million.
In the second quarter of fiscal year 2000, we offered early retirement
benefits as part of a broader workforce management program to align
staffing levels with expected demand. Under this program, 65 members of
our workforce retired on April 1, 2000. The amount of the early
retirement benefits, totaling $3.4 million, was expensed and accrued for
in our second quarter and will be paid in our third quarter. Subsequent
to the end of the second quarter, we developed plans and terminated an
additional 16 members of our workforce. Currently, we are continuing to
assess staffing levels in each of our Aircraft Engine Systems operations.
Industrial Controls
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
External net billings $45,124 $45,972 $91,497 $92,522
Segment earnings 9,126 5,748 19,941 10,863
Segment earnings for Industrial Controls increased in both the three
months and six months ended March 31 in 2000 as compared to 1999.
Industrial Controls benefited from our March 1999 reorganization, which
enabled it to lower costs and increase its focus on engine and turbine
manufacturers. With strengthened fundamentals, and an ability to offer
original equipment manufacturers high quality and competitive prices, we
are pursuing a strategy of increasing billings through market share gains
and innovative new product introductions, as well as serving the growing
demand for new gas turbines.
Other Segments
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
External net billings $26,248 $16,420 $48,736 $34,265
Segment earnings 2,460 (3,126) 3,814 (4,872)
External net billings of other segments increased in both the three
months and six months ended March 31 in 2000 as compared to 1999. This
increase primarily resulted from strong demand for our pre-engineered
control systems for gas turbine retrofit applications.
Other segment results improved in both the three months and six months
ended March 31 in 2000 as compared to 1999 primarily because of higher
billings and cost reductions in Global Services. Our March 1999
reorganization resulted in an increased focus on the control system
retrofit needs of industrial engine users. These improvements were
offset somewhat by higher expenses in Automotive Products, primarily
associated with a more fully-developed selling and administrative
infrastructure for conducting business, and the development of new
products.
On April 19, 2000, we announced the signing of a definitive agreement
under which we will sell the turbine control retrofit business of Global
Services to GE Power Systems. The sale is expected to occur late in our
third fiscal quarter and to result in a gain.
The portion of Global Services being sold accounted for almost 10% of our
consolidated billings in fiscal year 1999, although actual amounts have
not been determined. In fiscal year 1999, that portion of our business
generated losses. However, following our March 1999 reorganization
discussed above, it has improved its financial performance and has
generated earnings in fiscal year 2000. Its results are included in the
segment earnings reported for other segments and accounts for most of the
fiscal year 2000 improvement over fiscal year 1999.
The sale includes a product agreement with GE Power Systems for us to
supply controls to GE for application in the retrofit business. As a
result of the product agreement, external net billings of Industrial
Controls will increase and its intersegment net billings will decrease
after the sale has been completed.
Expenses Excluded From Segment Earnings
Three months ended Six months ended
March 31, March 31,
(In thousands) 2000 1999 2000 1999
Restructuring expense $ - $8,174 $ - $8,174
Interest expense 3,076 3,282 5,885 6,523
Interest income (165) (307) (339) (475)
Corporate expenses 4,406 3,374 8,282 7,659
Restructuring expense was recognized in the three months and six months
ended March 31, 1999, in connection with the March 1999 reorganization
and the consolidation of two of our facilities. Industrial Controls was
reorganized to separate the units serving engine and turbine
manufacturers from those that serve the retrofit market to enable us to
better focus on the precise needs of our customers and to align staffing
levels with expected demand. We also consolidated two facilities in
Germany.
Interest expense decreased in both the three months and six months ended
March 31 in 2000 as compared to 1999 because we had lower levels of
average outstanding debt this year as compared to last year, more than
offsetting the effects of higher interest rates.
Corporate expenses in the three months and six months ended March 31,
1999, included a gain of $1.0 million on the sale of non-operating real
estate in Stevens Point, Wisconsin.
Net Earnings
Three months ended Six months ended
March 31, March 31,
(In thousands, except per
share amounts) 2000 1999 2000 1999
Earnings before income taxes
and equity in loss of
unconsolidated affiliate $8,827 $3,905 $18,941 $13,231
Income taxes 3,440 1,562 7,485 5,292
Equity in loss of
unconsolidated affiliate,
net of tax 15 279 77 671
Net earnings $5,372 $2,064 $11,379 $ 7,268
Basic earnings per share $ .48 $ .18 $1.01 $ .64
Diluted earnings per share $ .48 $ .18 $1.01 $ .64
The increase in earnings before income taxes and equity in loss of
unconsolidated affiliate, which consists of the segment earnings and
expenses excluded from segment earnings included in the preceding tables
and discussion, resulted in an increase in income taxes in both the three
months and six months ended March 31 in 2000 as compared to 1999. Our
effective income tax rate decreased from 40.0% in our first three months
of fiscal year 2000 to 39.5% for the first six months of fiscal year
2000, better reflecting our expectations for the year.
The equity in loss of unconsolidated affiliate reflects our share of the
losses generated by GENXON(tm) Power Systems, LLC, a 50/50 joint venture.
Since its inception, most of the activities and costs incurred were
directly related to product development. GENXON reduced the amount of
development activities in both the three months and six months ended
March 31 in 2000 as compared to 1999. GENXON is focused on the retrofit
market for installed, out-of-warranty industrial gas turbines, which we
believed would develop before the original equipment manufacturers
markets developed. However, the original equipment manufacturers have
shown strong interest in the technology and we continue to monitor
direction of that market. In the meantime, GENXON's costs will be below
the levels of those incurred in fiscal year 1999.
Basic and diluted earnings per share increased in both the three months
and six months ended March 31 in 2000 as compared to 1999 by
approximately the same percentage as net earnings. Changes in the
weighted-average shares of common stock outstanding both before and after
the assumed exercise of outstanding stock options were relatively small.
Without the early retirement charge and the reduction in acquisition-
related accruals in this year's second fiscal quarter, and without the
restructuring expense and gain on the sale of real estate in last year's
second fiscal quarter, net earnings for the three months ended March 31
would have been $6.9 million ($0.61 per basic and diluted share) in 2000
compared to $6.4 million ($0.56 per basic and diluted share) in 1999.
Also without these items, net earnings for the six months ended March 31
would have been $12.9 million ($1.14 per basic and diluted share) in 2000
compared to $11.6 ($1.02 per basic and diluted share) in 1999.
FINANCIAL CONDITION
Our discussion and analysis of our financial condition is presented by
segment for total segment assets, which consists of accounts receivable,
inventories, property, plant, and equipment-net and intangibles-net. We
also discuss and analyze our working capital, noncurrent liabilities and
shareholders' equity and cash flows. Together, this discussion and
analysis will help you assess our liquidity and capital resources, as
well as understand changes in our financial condition.
Assets
March 31, September 30,
(In thousands) 2000 1999
Aircraft Engine Systems $321,381 $330,299
Industrial Controls 110,584 126,344
Other Segments 42,445 40,129
Unallocated corporate property, plant, and
equipment-net and intangibles-net 4,949 3,926
Other unallocated assets 53,070 49,966
Total assets $532,429 $550,664
Aircraft Engine Systems' and Industrial Controls' total segment assets at
March 31, 2000, were lower than at September 30, 1999, primarily because
of decreases in accounts receivable. The decreases in accounts
receivable are principally attributable to lower billing levels in the
second quarter of fiscal year 2000 as compared to the latter part of the
fourth quarter of fiscal year 1999.
Included above with the other segments are assets related to the turbine
control retrofit business we agreed to sell to GE Power Systems. At
March 31, 2000, the balances of segment assets held for sale under this
agreement were approximately $17.5 million.
Selected Other Balance Sheet Items
March 31, September 30,
(In thousands) 2000 1999
Total assets $532,429 $550,664
Working capital (current assets less current
liabilities) 120,476 124,392
Long-term debt, less current portion 130,000 139,000
Other liabilities 47,538 46,620
Commitments and contingencies - -
Shareholders' equity 243,774 241,992
Our balance sheet remained strong at March 31, 2000. Changes in our
balance sheet from September 30, 1999, included a reduction in long-term
debt while reducing working capital only slightly, made possible from
cash flows generated from operations.
We are currently involved in matters of litigation arising from the
normal course of business, including certain environmental and product
liability matters. Further discussion of these matters is in our Annual
Report and Form 10-K for the year ended September 30, 1999, in Note P to
the Consolidated Financial Statements on page 32.
Selected Cash Flow Items
Six months ended
March 31,
(In thousands) 2000 1999
Net cash provided by operating activities $ 26,712 $21,801
Net cash used in investing activities (13,222) (9,438)
Net cash used in financing activities (9,700) (6,290)
Net cash provided by operating activities improved in the six months
ended March 31 in 2000 as compared to 1999, primarily as a result of
improved earnings.
More of our cash was used in investing activities in the six months ended
March 31, 2000, than in the six months ended March 31, 1999. The most
significant reason for this difference is that we received cash from the
sale of non-operating real estate in the second fiscal quarter of 1999.
In addition, our capital expenditures in the first six months of fiscal
year 2000 were about $1.4 million higher than they were in the first six
months of fiscal year 1999. Of this amount, approximately $1.0 million
can be attributable to software development costs not previously
capitalized.
Net cash used in financing activities reflects our payment of dividends
and our reduction of debt, among other financing activities, resulting
from the positive cash we generated from operations in excess of our
investments.
Future cash flows from operations and available revolving lines of credit
are expected to be adequate to meet the investing and financing cash
requirements of our existing business during the next twelve months. We
also anticipate receiving cash late in our third fiscal quarter of 2000
related to the sale of our turbine control retrofit business of Global
Services to GE Power Systems. However, it is possible business
acquisitions could be made, during the next twelve months or in the
future, that would require amendments to existing debt agreements and the
need to obtain additional financing.
OTHER MATTERS
Market Risks
Our long-term debt is sensitive to changes in interest rates. Also,
assets, liabilities and commitments that are to be settled in cash and
are denominated in foreign currencies for transaction purposes are
sensitive to changes in currency exchange rates. These market risks are
discussed more fully in our Annual Report and Form 10-K for the year
ended September 30, 1999, in the Management Discussion and Analysis of
Results of Operations and Financial Condition on page 20.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement
provides guidance on accounting for the costs of software developed or
obtained for internal use and is effective beginning October 1, 1999. As
a result, we are now capitalizing certain software development costs that
we expensed in the past. We have estimated that the effect of complying
with this statement for planned projects will be to increase net earnings
in fiscal year 2000 by approximately $0.8 million. Of this amount, we
have already recognized an increase in net earnings of $0.6 million in
the six months ended March 31, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Following a subsequent deferral of
the original implementation date, it is effective in fiscal year 2001.
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. Among other
requirements, it requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative. The
company currently does not have any derivative instruments and does not
expect this new statement to have any significant impact on our
consolidated financial statements.
PART II - OTHER INFORMATION
Item 6
a) Exhibits
27. Financial data schedule
b) No form 8-K was filed for the quarter ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WOODWARD GOVERNOR COMPANY
May 8, 2000 /s/ John A. Halbrook
John A. Halbrook, President
and Chief Executive Officer
May 8, 2000 /s/ Stephen P. Carter
Stephen P. Carter, Vice President,
Chief Financial Officer and Treasurer